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Want to Turn a Profit? Hire a CHRO

Having a chief human resource officer (CHRO) in the executive suite appears to be good for the bottom line.

Fortune 500 companies with a senior HR leader in the C-suite are, on average, 105 percent more profitable than their industry peers that don’t have an HR person in the top executive ranks, according to a recent analysis by SuccessFactors, a SAP AG company.

The findings illustrate the importance of HR executives in strategic planning and the need for strong company HR operations, SuccessFactors reports.

“We found having a CHRO is correlated to a company’s bottom line, demonstrating the important connection between effective talent management and business performance,” said Shawn Price, president of SucccessFactors, SAP Cloud, in a news release.

“Institutionalizing the accountability CHROs have for aligning the workforce with corporate objectives is paying off,” he said in a company blog post. “Companies with both a higher percentage of goals aligned with corporate objectives, and identified HR risks, have better financial and market performance.”

CHROs embrace best practices such as active talent management, and certain HR tactics correspond to superior financial performance, SuccessFactors said. Among other results, the survey found that companies that identify HR risks in their annual reports outperform their peers in such metrics as operating profit, earnings per share and return on assets.

SuccessFactors, which sells workforce analytics technology, also cited a need for advanced human capital management software that aligns the complete employee life cycle. The company interviewed executives at Fortune 500 companies with and without CHROs in the C-suite and used cloud data from many of its own customers in search of human capital management trends.

William Tincup, SPHR, CEO of HR consultancy Tincup & Co., said it makes sense to have someone in the highest executive offices representing employees. “If there’s no one at the top representing not just the interests of HR but representing human talent … [they] are not represented.”

CHROs are 90 percent strategic—big-picture, forward-thinking planners—and 10 percent tactical, carrying out payroll and various compliance functions of the HR department, Tincup said. Organizations want strategy out of their HR people, he explained, adding that other company functions embrace long-term planning and forecasting based on data and gut feelings.

HR practitioners need the time to be strategic—only a small percentage of them are—and those who are “own the table,” Tincup said. Having senior HR leaders in the C-suite is a step in the right direction, he added, noting that workforce planning and examining how work will be done in the months and years to come are difficult tasks.

There are many more CHROs now than in 2004, when Tincup first started looking at the matter, because more businesses understand it’s an important position. It’s shrewd of companies to have that job because it’s an appealing career path for HR vice presidents, he said.